Three different business; Chobani yoghurt, ESPN and Phizer are an interesting contrast on how government support can help business and get a real return for taxpayers.
When Kraft Foods decided to shut down its South Edmeston yoghurt plant losing the 55 remaining jobs was a blow to the hamlet of 2,000 in upstate New York.
Eight years later the plant is in new hands, employs 600 people and is the centre of the United States’ thriving Greek yoghurt industry.
In 2006, Hamdi Ulukaya bought the dilapidated factory from Kraft to produce yoghurt similar to what he was used to in his native Turkey and today Chobani is one of the fastest growing food brands in the United States.
Ulukaya tells the story of Chobani in the Harvard Business Review and how the company has grown without any external investment, instead relying on bank finance and government supported guarantees.
Key to Chobani’s founding were the US Small Business Administration loan guarantee program that enable the entrepreneur to buy the mothballed Kraft plant.
While Chobani is a success of the Federal government’s program, just over a hundred miles away the Connecticut state government is pouring money into the maw of ESPN to keep the company’s head office in the town of Bristol, the New York Times reports the company has received nearly quarter of a billion dollars in subsidies in just over a decade.
ESPN has received about $260 million in state tax breaks and credits over the past 12 years, according to a New York Times analysis of public records. That includes $84.7 million in development tax credits because of a film and digital media program, as well as savings of about $15 million a year since the network successfully lobbied the state for a tax code change in 2000.
Notable amongst ESPN’s benefits are the credits under the state’s film and digital media program. As we’ve discussed on this blog in the past, the movie industry plays a cynical game or playing off governments and its no surprise that cable networks would do the same thing.
Connecticut has a bad track record in industry incentives, the destruction of much of the town of New London is a poster child of what governments shouldn’t do when trying to build new industries or attract large corporation.
New London’s demolition of an entire suburban district for the never built head office of pharmaceutical Pfizer is testament to what can go wrong when government officials are dazzled by big promises from large corporations.
Unless support is appliedstrategically and sensibly, competing against other communities to attract big corporations, sporting events or major projects is a zero-sum game that ultimately sees the taxpayer a lose.
While Chobani created 600 jobs in South Edmeston at no net cost to the taxpayer it’s likely Kraft would have demanded tens of millions of dollars in NY State taxpayer support for retain fraction of the jobs that the new business created.
Invariably modest small business programs prove to be a better bet for taxpayers than dumb corporate welfare, unfortunately governments around the world prefer to throw money at big business as they are the ones that write the campaign cheques and employ retired politicians.
Sadly in an era where corporate welfare is the norm rather than the exception, we can expect to see more ESPN type deals and fewer Chobanis with the taxpayer being the poorer for it.
When a politician proudly announces the number of jobs being created through their subsidies to a large corporation, it’s worthwhile for local taxpayers to take the spending of their money with a large grain of salt as history is not on their side.
Image courtesy of jprole through sxc.hu
